Key takeaways:
- The U.S. Supreme Court’s rejection of President Trumps use of tariffs marks a significant blow to a key tenet of the administration’s economic agenda.
- While this decision can be viewed as potentially positive for riskier assets and consumer prices, investors will need to seek greater clarity on how any potential refunds of already collected levies will be executed.
- Although this decision may remove some uncertainty affecting bond markets, the potential for additional Treasury issuance to pay for tariff refunds could impact yield curve dynamics by sending longer-dated yields higher.
In a six to three ruling this morning, the U.S. Supreme Court struck down President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping “reciprocal” tariffs and country‑specific levies, ruling that the statute does not authorize the President to impose tariffs of this scale or duration. The decision invalidates the administration’s most expansive use of emergency powers to reshape global trade and represents the most significant legal setback to President Trump’s economic agenda in his second term.
The Court held that while IEEPA allows the President to “regulate” imports in response to an emergency, it does not extend to the unilateral imposition of broad‑based tariffs. Chief Justice John Roberts emphasized that granting such authority would represent a “transformative expansion” of executive power, particularly given that no prior president has invoked IEEPA to levy tariffs in its nearly 50‑year history.
Immediate fiscal and trade implications
The ruling throws into question tens, and potentially hundreds, of billions of dollars in customs duties collected since the tariffs were introduced. While the majority opinion is silent on refunds, lower courts will now likely be tasked with determining whether importers are owed repayments. Media and analysts estimates suggest that the sums involved could be substantial, implying a non‑trivial, one‑off fiscal hit in 2026 if refunds are ultimately mandated.
From a trade perspective, the decision sharply curtails the President’s ability to deploy emergency statutes to negotiate bilateral deals or impose discriminatory tariffs across trading partners. Sector‑specific tariffs imposed under other authorities, such as Section 232 national‑security measures on steel and aluminum, remain intact, but given this ruling, the era of rapid, across‑the‑board tariff escalation now faces much higher legal barriers.
What comes next?
We anticipate that the most likely near‑term pivot by the administration is toward alternative trade statutes, notably Section 122 of the 1974 Trade Act, which allows temporary, non‑discriminatory tariffs to address balance‑of‑payments problems but caps both their rate and duration. Other options, including Sections 201 and 301, or further reliance on Section 232, would require lengthy investigations. Those potential remedies would limit the administration’s ability to act quickly or unpredictably.
Market implications
For markets, the ruling modestly reduces U.S. trade‑policy uncertainty by limiting the President’s ability to impose abrupt, executive‑driven tariffs. We view this as mildly supportive for global risk sentiment and trade‑exposed sectors, even if it does not signal a wholesale reversal of the recent trend toward U.S. protectionism.
With respect to interest rates, the decision introduces a potentially countervailing force. If the courts ultimately require the Treasury to refund a meaningful share of previously collected tariff revenues, the resulting fiscal shortfall would need to be financed through higher issuance. At the margin, that raises the risk of further steepening pressure at the long end of the U.S. Treasury yield curve, particularly if refund‑related issuance coincides with already elevated borrowing needs and ongoing quantitative tightening. In that sense, while the ruling may reduce trade‑policy tail risks, it may simultaneously reinforce structural steepening dynamics in Treasuries.
More broadly, the decision underscores a shift toward slower, more procedurally constrained trade policy. This could reduce headline volatility, but at the same time raise the importance of fiscal mechanics and supply considerations for fixed‑income markets.
The 1974 Trade Act granted the U.S. President broad authority to negotiate trade agreements, reduce tariffs, and combat unfair foreign trade practices. Section 122 grants the President the authority to impose immediate but temporary tariffs (up to 15%) or quotas for up to 150 days on goods from other countries under specific conditions. Section 201 allows U.S. industries seriously injured by surging imports to petition for temporary “safeguard” relief. Section 301 empowers the Office of the United States Trade Representative to investigate and retaliate against foreign trade practices that violate trade agreements, or are unjustifiable, unreasonable, or discriminatory, and burden U.S. commerce.
Section 232 of the Trade Expansion Act of 1962 authorizes the U.S. President to impose tariffs or quotas on imports in specific industrial sectors deemed critical to national security.
Fiscal/Fiscal policy describes government policy relating to setting tax rates and spending levels.
The International Emergency Economic Powers Act (IEEPA) provides the President broad authority to regulate a variety of economic transactions following a declaration of national emergency.
Quantitative tightening: A government monetary policy occasionally used to decrease the money supply by either selling government securities, or letting them mature and removing them from its cash balances.
Risk assets: Financial securities that may be subject to significant price movements and carry a greater degree of risk. Examples include equities, commodities, property, Monetary policy used by central banks to stimulate the economy by boosting the amount of overall money in the banking system. lower-quality bonds, and some currencies.
Volatility: The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility, the higher the risk of the investment.
Yield curve: A graph that plots the yields of similar quality bonds against their maturities, commonly used as an indicator of investors’ expectations about a country’s economic direction.
Investing involves risk, including the possible loss of principal and fluctuation of value.